Markets

Guggenheim's Scott Minerd predicts 'sudden and precipitous collapse' in bond prices

Key Points
  • During the last two days of the market sell-off, the prices of U.S. Treasury bonds have fallen along with stocks.
  • "Our view is that if we are not already in a recession, we will slip into one very soon," Minerd said. 
  • The Fed announced roughly $1.5 trillion in actions designed to help provide liquidity to the financial system at about midday Thursday.
Scott Minerd explains today's nearly 10% sell-off
VIDEO15:4015:40
Scott Minerd explains today's nearly 10% sell-off

Scott Minerd, Guggenheim Global's chief investment officer said Thursday that there would be a sharp decline in the credit market despite efforts by the Federal Reserve to improve liquidity. 

"It's very situational right now. There are many securities that you really can't get bids for ... I think in the credit markets we will see a sudden and precipitous collapse in prices," Minerd said on "Fast Money." 

During the last two days of the market sell-off, the prices of U.S. Treasury bonds have fallen along with stocks, signaling concern about a rise in corporate defaults due to the coronavirus pandemic and liquidity issues in the bond market.

The Fed announced roughly $1.5 trillion in actions designed to help provide liquidity to the financial system at about midday Thursday, giving stocks a short-lived spark before they fell back to finish near session lows. 

However, Minerd said that he didn't see an improvement in the bond market after the announcement, saying he saw a 30-year Treasury bond with a spread between bid and ask prices that he usually only sees for junk bonds. He said the Fed would have to do more to support the economy.

"Our view is that if we are not already in a recession, we will slip into one very soon. And the analysis that we've done shows that it will probably take about $4.5 trillion of asset purchases in order to stabilize the economy," Minerd said.

He also said Congress should also consider allowing the U.S. Treasury to buy troubled assets on a scale larger than it did during the financial crisis. 

The proposals from government leaders including President Donald Trump are not enough to offset the economic impact from the virus, Minerd said. He cited the cancellation of large events like sports tournaments as an effect of the pandemic that will hurt the economy.

"We're going to have a sharp contraction for consumption, if for no other reason we don't have anywhere to go to consume," Minerd said, adding that he thought the economy would not bounce back quickly once the virus has passed.